Saturday, May 31, 2014

A friend’s family canceled cable this month, and the way it happened points to cable TV’s ongoing retreat from its long-dominant position in U.S. entertainment.

This is a subject that has interested me since, a decade ago, I unplugged my own TV cable for a month as an experiment. Was it really practical, I wondered, to live without cable TV? Times and attitudes have changed, so that by now, so many people have canceled their TV subscriptions that it is obvious that going cable-free is just a slight lifestyle variation.

And so, in this latest story, a family had a bit of a cash crunch, and canceling cable was one of the first things they thought to do. There wasn’t any agonizing over whether canceling cable was a possibility. Rather, it was just one of the obvious first steps for a household facing an austerity budget.

In the last few years, canceling cable has gone from being seen as nearly impossible in a middle-class mindset to being simple and obvious. A TV subscription is still a consensus among middle-class households, and the total size of the TV audience has nearly held steady, but it is clear that there is the potential for TV to lose a substantial part of its audience fairly quickly, a potential that wasn’t there a few years ago.

Friday, May 30, 2014

Ratings: Moody’s changed its outlook to negative for 82 European banks because of new euro zone bank resolution rules that prohibit bailouts for bank bondholders. In the same announcement it upgraded one bank.

Cuts: RBS is reducing its U.S. mortgage business by two thirds, resulting in hundreds of job losses. The move is partly to reduce its risks in the U.S. real estate market and partly to reduce its U.S. footprint below $50 billion in assets, a level that would subject it to closer Fed scrutiny.

Seeking capital: Bank of America is selling 13 Tennessee branches to First Tennessee Bank. Bank of America is in the middle of a multi-year process of closing hundreds of branches in order to cut its operating costs. Citigroup says it expects to sell the OneMain personal loan business this year, probably in a private sale. It has been trying to unload the high-risk operation for years, but previously there was little interest from buyers.

Investigations: The U.S. Justice Department is investigating France’s BNP Paribas for running money for Iran. Reportedly the bank could face a fine near $10 billion or the loss of its U.S. banking license. The Justice Department is investigating at least 10 banks along with other companies for participating in transaction fraud. In particular, banks are believed to have processed hundreds of millions of dollars in fraudulent charges for black-market gun dealers that were essentially blackmailing their customers. The city of Los Angeles is accusing JPMorgan and Wells Fargo of discriminatory and predatory lending practices. Providence, Rhode Island, is pursuing a similar case against Santander.

Bank failures this year have disproportionately come on the last Friday of the month, and that pattern continues tonight. In Maryland, the O.C.C. closed Slavie Federal Savings Bank, which had $111 million in deposits at two branches in Bel Air and Baltimore. Bay Bank is paying a 0.2 percent premium for the deposits and is also purchasing 93 percent of the assets. The failed bank was originally created to serve immigrants from Bohemia. The O.C.C. had ordered it in 2012 to improve its operations.

Thursday, May 29, 2014

When the U.S. government tries to keep track of where manufactured goods come from, it takes a 19th-century attitude. If you are the original seller of a manufactured product, government statistical agencies assume you must own the factory where the product is made, and employ the factory workers. If you have things made but are are not the factory owner, it causes no end of confusion for official statistics.

Yet it has been a conventional business approach for at least half a century for “manufacturers” of products to outsource the actual manufacturing. I think first of book publishers and record companies. Most businesses in these categories had given up their factories by 1970. Today, if you were a book publisher that also owned a printing plant, people would say, “Wow, that’s unusual.” If you look at the way clothing and electronics are made, and have been at least since 1990, you are likely to see a similar pattern. The company that owns the brand, the designs, and the finished products is not necessarily the same company that owns and operates the factory. Indeed, the factories could easily be in another country entirely.

The Bureau of Labor Statistics says it is looking into the question of “Factoryless Goods Producers” (FGPs), generally including any business that:

Owns rights to the intellectual property or design (whether independently developed or otherwise acquired) of the final manufactured product

May or may not own the input materials

Does not perform transformation activities

Owns the final product produced by manufacturing service provider partners

Sells the final product

The general thought is that FGPs should be included in the manufacturing sector but kept separate from factories. It is apparently a complicated question, though, as the Bureau says we should not expect any changes in official statistics before 2017 at the earliest.

Wednesday, May 28, 2014

Seven years ago, some of the more optimistic voices in the oil industry were trying to persuade the United States that they could find oil and natural gas under every rock. The Department of Energy bought into much of that narrative, issuing exaggerated estimates of fossil fuel stores. But on closer examination, the vast stores of oil and natural gas imagined to be under American soil are slowly disappearing from official estimates. Much of it, it turned out, never existed at all, but was added to estimates for essentially political reasons. Large parts of the oil and gas that are still believed to exist have been found to be inaccessible. Combine these two effects, and some estimates are all but evaporating. A week ago, the estimate of oil production in the Monterey Shale in California was cut by 96 percent, and this is just the latest and most embarrassing in a series of revisions.

Realistically, new oil will not magically appear in places that have already been examined unless there is some kind of breakthrough in geology or extraction technologies. Such advances have been hard to come by, despite the hype that accompanies each new innovation in the field. Some experts now expect U.S. oil production to decline again after next year as most known oil fields are exhausted. With less oil in the ground than the industry had allowed itself to imagine, the United States is not about to become an oil giant again. It will have to look at more practical sources of energy to solve its energy and trade shortfalls.

Tuesday, May 27, 2014

There isn’t much to tell you that the Staples store in Frazer, Pennsylvania, is about to close — no hyped-up going-out-of-business sale, no storewide markdowns, no banner hanging from the front of the store. There is an apologetic poster in the store’s front window giving the closing date, and a few clearance displays can be found in the main aisles, but these are details a shopper could easily miss. Three weeks before the closing date, it is business as usual, with shelves almost fully stocked.

i wasn’t about to go away empty-handed from a store that was about to close, so I looked over the clearance displays. The best prices I found were on black fine-line Sharpies and paper towels. The receipt I got when I purchased these items was the strongest indication that something was up — it was two feet long. The receipt repeated the message and apology about the store closing. Then it had coupons encouraging me to buy online or at any other local Staples location. The coupons are pointedly not valid at the Frazer store itself — Staples wants its customers to seek out the other nearby locations, or to try ordering on their web site.

It is easy to imagine the Frazer store closing. There are four other stores within ten miles, each bigger and more successful than the one in Frazer. Staples is closing stores simply because it has too many of them. There is no master list of locations to close, but Frazer is one of the first. After the store closes, I can imagine the stock being taken from the shelves, loaded on a truck, and taken to the nearest remaining Staples store, restocking the shelves there. I can also imagine regular customers going for months without noticing that the store had closed. Office supplies don’t have the urgency that they had twenty years ago, at least not until the printer is out of toner, and that doesn’t happen nearly as quickly as it once did.

Sunday, May 25, 2014

The song and video are from Ireland, but the idea should be familiar to anyone in the United States: you might decide to do business with a credit union rather than a bank just because you are likely to be treated better at a credit union.

Saturday, May 24, 2014

At Fukushima, the nuclear power station has started to pump ground water into the Pacific Ocean — and believe it or not, this is considered progress.

It is progress because the water in question comes from behind an underground barrier installed to protect ground water flows from nuclear sediment. The water being pumped into the Pacific is surely contaminated with radioactive materials to some extent — this is a question the government and power company have not addressed directly, for obvious reasons. It is perhaps better not to ask, as there is no obvious alternative. The new pumps avoid or at least delay the prospect of having diluted nuclear cooling water spill directly into the ocean.

Engineers are working on a plan to filter the nuclear cooling water to clean it up enough that it too can be released into the ocean. There is too much water on site, in surface tanks and underground, for the real work of containing the out-of-control reactors to begin, so it is a problem that will have to be solved somehow. The power station is still in the very early stages of cleanup. It is something that nuclear engineers had warned us about from the beginning — when a nuclear installation gets thoroughly messed up, setting it right can take a very long time indeed.

Friday, May 23, 2014

Charged: HSBC, JPM, Credit Agricole, for colluding on euro interest rates. London-based broker ICAP was named, but charges are still pending. Credit Suisse pleaded guilty to helping its customers dodge U.S. income taxes; it is paying a $2.5 billion fine, and regulators have agreed not to cancel its banking license in the matter.

Raising capital: Deutsche Bank hopes to raise €8 billion in a stock issue. Separately, it brought in €2 billion from the sale of its Las Vegas casino and €3 billion of “contingent capital” in a bond issue. An emergency meeting of stockholders of Monte dei Paschi approved a €5 billion stock issue, probably enough to cover losses from bad loans made in recent years. The world’s oldest bank is also closing 550 branches and making other cuts. Barclays is seeking a buyer or buyers for its banking operations in Spain (with Italy, Portugal, and France to follow).

Mistakes: Target fired its head of its unprofitable Canadian operations before warning that it still could not estimate the ultimate costs of last year’s security breach. EBay has reported a user data breach of similar scale, with the data of every eBay user taken from an internal database, though so far, it thinks payment information was not leaked.

Staying put: The new U.S. head of housing policy thinks it could take more than a decade to replace Fannie Mae and Freddie Mac.

Update: I wasn’t expecting a bank closing on a holiday weekend, but there it is: Columbia Savings Bank, located in Cincinnati, Ohio, with $30 million in deposits. Indiana-based United Fidelity Bank is assuming the deposits and purchasing the assets, in the process gaining its first Ohio branch. The failed bank had been posting losses for the last eight years. Also today, state regulators closed Life Line Credit Union, with 2,000 members in Richmond, Virginia, and the NCUA transferred the member accounts to Virginia Credit Union.

Thursday, May 22, 2014

Looking at Tuesday’s election results, you would be excused for thinking that the Tea Party had not bothered to come out to vote. That must be partly true, but as with everything in politics, it is not as simple as that. The Tea Party is a movement at war with its own country, and war, even if it is just a culture war, is hard to sustain. After five years even the most ardent fighters must be groaning at the enormity of the task they had taken on, of toppling one of the world’s powerful countries and making its people bow down to a foreign culture. Election day in Pennsylvania, which did not go well at the polls for the Tea Party, also brought a court ruling that struck down the state’s hard-fought gay marriage ban. It is a decision that will not be appealed, in part because the ruling follows recent Supreme Court guidelines so literally that it would be almost impossible for the Supreme Court to disagree with it. The timing was coincidental, but the event was symbolic of the Tea Party’s biggest problem. With America becoming ever more American, what place is there for a group that just wants to shut it all down?

And this business of shutting things down is the other big challenge for the culture-war contingent of the Republican party this year. Last October 1, it arranged to shut down the federal government, symbolically shutting down the country. With the determination of the police who arrive at midnight to tell the house “the party’s over,” it vowed to keep the country shut down through this fall’s elections. That resolve lasted only a matter of days, making the Tea Party both a saboteur and a loser. It squandered about $100 billion of the people’s money and nearly caused a recession, and in the end, accomplished nothing. In doing so, it lost face and it lost any hope of holding on to its billions of dollars in Wall Street funding — and that helps to explain why, in losing this spring’s elections one by one, the Tea Party has gone away so quietly. The rented stage has been carried away. It is just as well, as the message had long since become hopelessly muddled. In its most recent form, it might fairly be paraphrased as “Rise up and let the poor die of their poverty,” which is not quite a stirring call to action.

I am not sure the Republicans are breathing easier for having shrugged off the pesky Tea Party so easily this spring. Republicans still face the problems that go with being 20 years older than any other party, and predominantly male at that. Time is not on their side. Just from basic demographics they fall another percentage point behind every two years. It is a problem they cannot bring themselves to face, and as long as they cannot, they will continue to be a party in retreat.

Wednesday, May 21, 2014

Some policies are put in place just to give authorities an excuse to throw their weight around — and while the purpose of the resulting abuses of power may be obvious from the outside, that does not mean it is obvious to the victims of these abuses. They may really believe they have done something wrong.

It is dress code season at thousands of U.S. high schools. Jessica Valenti writes in Guardian:

Tuesday, May 20, 2014

Here’s a lesson in marketing and law of attraction. You’ve heard about that internal General Motors document that listed 69 “judgmental” words that workers were encouraged not to mention when describing the automaker’s defective products, right? Employees were told not to describe GM cars using words and phrases like “grenade” and “you’re toast.” It’s all good advice from a marketing point of view, but the problem, of course, is that the “banned” words were all written down in one place and, of course, that document eventually leaked. That, in turn, made possible John Oliver’s fake General Motors commercial, which can be seen at the end of the clip below.

The marketing experts at General Motors were, I am sure, just trying to present product defects in the most favorable light possible and thus having to make a case against negativity. It didn’t work because they bought into the negativity. If you ever find yourself in a similar situation, you can’t make the case for positivity by encapsulating and celebrating the negativity. If you must mention the negative patterns in order to argue against them, find a way to obscure the negative message in some way so that the message of positivity that you present in contrast comes across more clearly and vividly. Using this case as an example, which phrase is more catchy, and more likely to be remembered: “does not perform to design” . . . or “life-threatening”?

Monday, May 19, 2014

Brazil saw the upcoming major sports event as a focal point to build a dozen new stadiums and new infrastructure, but the process has gone so badly that it has become an embarrassment for government at all levels from national to local. People already suspected much of Brazil’s government of corruption, but now they are sure of it. Billions of dollars for stadium construction paid for work that wasn’t done, forcing expensive rework when the gaps were discovered. This corruption appears to have led directly to the construction deaths that have become a focal point of protests against the event. Planned improvements in transportation have been scrapped or delayed. With only days remaining, there are reasons to doubt whether the World Cup will come off looking like a success, even on television.

It is a setback for Brazil. The country has done well in recent decades when it has focused on economic self-sufficiency. It had looked like it had the best chance to break through to a European-like middle-class economy among the “large emerging economies.” Hosting the World Cup was supposed to be a chance to show off its progress, but it was also a departure from its economic strategy and now may be seen as, at best, an extravagant misstep that it will take time to recover from. People on the street know this and dozens of officeholders have already been removed from office because of official wrongdoing or other problems related to the preparations. If there is a positive note in all this, it is that the high-profile problems have changed the political conversation and may force politicians to become more practical in their planning.

Sunday, May 18, 2014

Switzerland voters today appear to have voted down a minimum wage around $25 an hour. However, the vote estimates, with about one third of voters voting in favor, suggest that this kind of minimum wage is probably on its way within a generation. Reactions suggest that $25 an hour, which is well below the median in Switzerland, is consistent with views of the social contract — that is, most people agree that employers mostly should try to pay at least this much for a normal job. The proposed minimum, though, was probably seen as too far beyond cultural expectations and the practices of neighboring countries.

Friday, May 16, 2014

A portfolio manager at SAC Capital was sentenced to 3 years 6 months for his role in the insider trading that forced the hedge fund manager to shut down.

Sallie Mae will pay $7 million in penalties and an estimated $90 million in restitution after systematically defrauding its student loan customers by misrepresenting military service rules and payment deadlines. The bank says it has fixed its processes to comply with its contracts and fair lending standards.

The specter of bank failure returned to Chicago, tonight claiming the nine-year-old AztecAmerica Bank. The bank had never recorded a profit because of problems with business loans and mortgages. It had $90 million in deposits at its peak and by today had shrunk by about a third from that.

Thursday, May 15, 2014

U.S. retail reports and earnings reports from JCPenney and Wal-Mart give me the impression that people are tired of buying stuff.

U.S. retail sales were up 0.1 percent in April. That’s a rate lower than population growth, but it is compared to a March in which consumers partly made up for purchases they couldn’t make when extreme winter weather kept them home in January and February. Wal-Mart blamed winter weather for a small part of its slowdown: retail traffic at Walmart stores was down about 2 percent from the year before, resulting in sales revenue that was essentially flat. At JCPenney the news was worse. Sales rebounded by 6 percent but after an exceptionally dismal 2013 that is not nearly enough to put the company back on sound footing or even to point it toward a possible strategy. The poor results from JCPenney suggest that shoppers are being more picky and won’t buy stuff just because it’s there and on sale. At Wal-Mart it seems shoppers who are financially squeezed are opting to postpone purchases that aren’t urgent so that they can buy better things than they are seeing in the store. This doesn’t bode well for Wal-Mart’s ability to sell clothing, as current clothing can take a long time to wear out. Wal-Mart’s results are particularly telling at a time when many of its shoppers are staying away from one of its biggest competitors, Target. Wal-Mart is declining in spite of a boost from Target’s misfortune, so you can expect Wal-Mart’s results to look even worse as the Target story fades.

None of this means people will stop shopping, but the merchandise that stores offer will have to do more to inspire shoppers. If people go shopping and see the same old things, not made or presented particularly well, they’re more often willing to wait until they see something better.

How to operate an anti-corruption institution in government is far from obvious as, amid a culture of corruption, an agency created specifically to target corruption is an immediate and obvious target of the forces of corruption. One surprising conclusion of the research is that investigations must target the hidden side of corruption, removing the bribe-taking operatives and other functionaries that prop up corrupt institutions. This has a more immediate effect than removing the obviously corrupt high-ranking officials — their popularity makes it harder to dislodge them, and in many cases, they can easily be replaced, to little lasting effect.

Friday, May 9, 2014

Fed chair Janet Yellen said yesterday the Fed has not done any planning on steps to reduce the size of its enormous balance sheet. She suggested the most likely action would be to hold bonds, the biggest category of assets the Fed has, until they mature. It’s a strategy I have been expecting all along, as it allows the balance sheet to decline gradually while avoiding the market risks and transaction costs of selling these assets at auction. Based on this approach, the Fed balance sheet could shrink to pre-crisis levels by 2022, Yellen suggested.

One possible way to reduce the burden of student loans would be to allow college graduates to refinance their loans, the way homeowners routinely do. This would reduce the leverage that student lenders have over debtors and could reduce some of the predatory practices of lenders at the same time that it reduced the interest payments of student borrowers. A bill that would permit this has been introduced in Congress.

The U.S. Treasury recorded a surplus in April. This isn’t too surprising, as April is the month with the highest income tax revenue, but it is nevertheless a hopeful sign about the state of the federal budget.

Target decided to remove its CEO this week, apparently feeling its top executive was hindering reforms needed after a Christmas-season data breach. The point-of-sale network intrusion was noted but ignored for weeks at the retailer, which responded only after government officials inquired about fraudulent use of data leaked from the network.

Following up on a successful bond auction, Portugal is preparing for a “clean exit” from its European bailout arrangement, following the pattern previously set by Ireland. To my mind, Portugal’s seemingly miraculous financial recovery is a measure of how much its fiscal troubles, along with those of several other European countries, were driven not by accounting fundamentals but by bond market manipulation.

Wednesday, May 7, 2014

Figure this out: forecasting techniques are far more advanced than they were just 20 or 30 years ago, yet the world is not, in general, becoming more predictable. Rather, in many ways, it is becoming more chaotic.

Part of what is going on is that better prediction leads to better optimization. We usually think of optimization as a good thing that leads to efficiency, but you get a different sense of it if you consider some of its synonyms. Optimization can mean pushing the limits or living as close to the edge as you can get. It is good when it works but lends itself to catastrophic failure when things go wrong, and this is one small part of the chaos we find in the world.

A more general way of looking at this is to think of what happens when you empower people. When people are empowered, more new and different things can happen, and that implies a greater potential for chaos or at least unexpected changes. From that, we can probably expect the world to get more chaotic and unpredictable in the years ahead.

Tuesday, May 6, 2014

Office Depot posted a loss in the first quarter and said it would close at least 400 U.S. locations, starting with 150 this year. This is not so different from what Staples said two months ago. It is a reaction to a broad declining trend in office paperwork as more documents are handled electronically. Other trends are also working against the big-box office supply stores, besides the trend away from paper and toner: computers are more durable, office equipment generally is smaller, so that less furniture is required, and businesses are more flexible in the way they purchase supplies.

Monday, May 5, 2014

“If a superior alien civilisation sent us a message saying, ‘We’ll arrive in a few decades,’ would we just reply, ‘OK, call us when you get here – we’ll leave the lights on’? Probably not – but this is more or less what is happening with AI.”

Stephen Hawking, Stuart Russell, Max Tegmark, and Frank Wilczek warn about the risks of underestimating the impact of thinking machines:

Friday, May 2, 2014

A previously unknown defect in Microsoft Internet Explorer came to light last weekend as U.S. authorities found the browser was being used to systematically spy on U.S.-based banks, along with defense suppliers and probably also government targets that weren’t disclosed. The realization that they were specifically being targeted has made banks especially cautious about this browser bug, and some banks have urged their employees and customers to avoid using Internet Explorer for the time being. However, I have not heard of a bank actually banning Internet Explorer from its site or removing the browser from its own computers. The United States government and the government of Australia issued official cautions about Internet Explorer, quickly joined by several other countries.

The profile of attacks, based on what little has been revealed, seems consistent with the involvement of a major foreign power. We may tend to think of China first when it comes to state-sponsored Internet break-ins, but the cautious, low-key approach and selection of targets would not seem to point to China, but to a country affected by U.S. money-laundering rules. Attacks can potentially disclose information stored on a computer, install new software on a computer, or damage a computer.

All versions of Internet Explorer are affected. A fraction of attacks exploit a flaw in Adobe Flash Player to trigger the flaw in Internet Explorer, but others may be triggered just by loading a compromised web page.

Based on Microsoft’s history, it will likely release a partial fix within a month and a more complete fix within three months. One key question is whether a fix will be made available that works in Microsoft Windows XP, an old operating system that is no longer officially supported but nevertheless remains the standard desktop configuration inside many major banks. If Internet Explorer cannot be secured within Microsoft Windows XP, I wonder if the Fed will take the step of issuing guidance that finds that software combination not to be a secure platform for banking data. That would nearly be a ban on Microsoft Windows XP for banks, as that guidance would make banks liable for negligence in the event that banking data was disclosed as a result of using Microsoft Windows XP. That kind of guidance from the Fed would be an unusual step, but then, this particular browser flaw and its targeted exploits have been unusual from the beginning.

Thursday, May 1, 2014

Google has always stored abstracted linguistic summaries of the data in e-mail messages it hosts. It uses this information to help select the advertising that users see, mainly on other sites. It may also use it for other purposes we don’t know about. But the mere collection of this data, from people who have not individually signed up for the Gmail service, may violate California wiretapping law. And so today, Google decided it would stop collecting the text of email messages sent and received by students who use its Apps for Education suite. It will go on to make similar adjustments to commercial versions of Google Apps.

Data mining has limits when it involves data that you don’t quite have the right to read. Google had held that its process of abstracting the text of email messages and other messages from one person to another insulated it from its duty not to intrude on people’s private communication, but now has decided that view might have been pushing things a bit too far.